Next warns of price increases due to the “unusually high” increase in the wage bill

Clothing retailer Next has warned it will increase prices to help offset an “unusually high” rise in wage costs.

The retailer expects its wage bill to grow by £67m in the year to January 2026, boosted by changes announced by Chancellor Rachel Reeves in the recent October Budget.

From next April, UK businesses will pay a 15 per cent National Insurance levy on employee salaries above £5,000 a year, instead of the current 13.8 per cent tax on salaries over £9,100.

At the same time, the national living wage will rise by 77p to £12.21 an hour, and the national living wage for 18-20 year olds will rise by 16.3 per cent to £10 an hour.

In response, Next plans to increase sales prices for similar clothing by 1 percent above factory price increases, although they currently have 0 percent inflation.

The FTSE 100 group is also aiming to achieve some “operational efficiencies”, including through “new mechanization” in its stores, warehouses and distribution networks.

It noted that consumers were purchasing fewer but “slightly more expensive” items in its stores, a trend it expects to continue next year.

Due to the NI increases, Next forecasts its UK full-price sales will grow by just 1.4 per cent this financial year, compared with 2.5 per cent in the 12 months to December 28.

The Leicester-based firm also believes full-price overseas revenue will rise by 14 per cent, having soared by 24 per cent last year following a huge increase in marketing spend.

However, Next still predicts pre-tax profits will expand 3.6 per cent to £1.05 billion, supported by higher full-price orders and £73 million in cost savings.

He told investors: ‘Apart from the numbers, there is an important message. “We believe the group can achieve sales growth in the coming year and that we can grow profits in line with sales.”

Thanks to a trading boost from the timing of an end-of-season sale, the company has raised its annual pre-tax profit forecast for the year ending January 2025 by £5m to £1.01bn.

If Next achieves this, it will join Tesco, Marks & Spencer and Screwfix owner Kingfisher as one of only four British retailers to have made at least £1bn in annual profits.

The company raised its profit forecast three times in three months last year as it continued to shrug off widespread pessimism affecting high street retailers.

“Overall, the UK retail sector finds itself between a rock and a hard place,” said Charlie Huggins, head of equities at investment service Wealth Club.

‘Costs are rising, margins are likely to fall and consumers face an inflationary squeeze.

‘The next one, however, is well placed to weather the storm. “If any retailer can thrive in this environment, it’s probably them.”

Next actions They rose 3 per cent to £98.42 on Tuesday morning, taking their gains over the past year to around 16 per cent.